Yesterday’s post, Jewelery insurance and the missing wedding band – avoid the mysterious disappearance exclusion, discussed an “all risk” or “open perils” policy form compared to a named risk contract. Marine insurance is a form of “all risk” coverage, but its coverage analysis often has significant discussion of “accident” as a requirement for coverage to apply.
A federal appeals court1 had a bit heavy introduction to this requirement and said:
Poems and books are written, songs are sung and films are made about sinking ships. But there is nothing outrageous or awe-inspiring about a yacht partially sinking in calm waters while docked. Unfortunately, that is the incident at the center of this case. In the insurance dispute that followed, the district court ruled in the insurance company̵7;s favor because the yacht’s owners, Mr. and Mrs. Inganamort, did not carry their burden of proof that the damage was accidental – “accidental,” in insurance slang – which is a requirement for coverage under the all-risk insurance that the Inganamorts had. Because we agree that an insured bears the burden of proving accident, and that Inganamorts failed to meet that burden here, we will affirm.
In its analysis, the court noted that the insured bears the burden of proving that the injury was “accidental:”
[W]When Three Times a Lady went down, it was covered by an all-risks policy, which protects against accidental losses, meaning losses that are unexplained or “due to chance”. Intermetal Mexicana, S.A. v. Ins. Co. of N. Am.866 F.2d 71, 77 (3d Cir. 1989) . . . Comprehensive insurance policies “originated for the very purpose of protecting the insured in those cases where difficulty of logical explanation or some mystery surrounds (loss of or damage to) property .’ Morrison Grain Co., Inc. v. Utica Mut. ins. Co., 632 F.2d 424, 430 (5th Cir. 1980)…. But only because an insured need not ‘show the exact cause of the loss to show chance[,]’ this does not mean that an all risk policy covers all damages. ‘All risk’ is not synonymous with ‘all loss’. Despite Inganamort’s argument, an insured must do more than prove that there was a loss. To enjoy coverage, the insured must prove that the injury was truly accidental.
The First, Second, Fifth, and Eleventh Circuits have all held that for marine insurance, the insured bears the burden of proving that the loss was fortuitous. Looks Banco Nacional de Nicaragua v. Argonaut Ins. Co.681 F.2d 1337, 1340 (11th Cir. 1982) (‘The [insured] in a suit under an all-risk policy, a relevant loss must be shown to invoke the policy, and proof that the loss occurred within the policy period is part of the showing of a loss.’); Morrison Grain632 F.2d at 429 (‘[T]The burden of proof is generally on the insured to show that an injury arose out of a covered peril.’); Atlantic Lines Ltd. v. American Motorists Ins. Co.547 F.2d 11, 12 (2d Cir. 1976) (‘[F]or recovery under an all risk policy, an insured need only show that a fortuitous loss has occurred.’); Boston Ins. Co. v. Dehydrating Process Co.204 F.2d 441, 443 (1st Cir. 1953) (‘Undoubtedly … the owner of the barge and its cargo has the burden of establishing … that its loss was caused by a peril insured against[.]’). In the non-maritime context, we have also held that an insured with an all-perils policy bears the burden of proof that an injury was accidental and therefore covered by the policy. Looks Intermetal Mexicana, 866 F.2d at 76-77 (describing what the insurer showed to prove that the occurrence was fortuitous). We now join our sister circuits in holding that under a marine all-perils policy, the insured bears the burden of proving that a loss was fortuitous.
That burden is not heavy, but it is more than negligible (‘[T]It is not very burdensome to show at random[.]” (quoting Morrison Grain632 F.2d at 430)); see also PECO Energy Co. v. Boden, 64 F.3d 852, 858 (3d Cir. 1995) (`Proving coincidence is not particularly difficult.’). Because the nature of an accidental injury is that it may not be easily explained, the insured need not point to a precise cause of the injury. About Balfour85 F.3d 68, 77 (2d Cir. 1996) (“The insured … need not prove causation of the injury.”); Morrison Grain632 F.2d at 431 (‘[C]Those of us who have considered the question have rejected the view that the insured must show the exact cause of the injury in order to show chance.’). When a vessel sinks in, for example, calm water, an insured can create a presumption of accidental damage by establishing that the vessel was seaworthy before it sank. Looks ins. Co. of N. Am. v. Lanasa Shrimp Co.726 F.2d 688, 690 (11th Cir. 1984); Reisman v. New Hampshire Fire Ins. Co.312 F.2d 17, 20 (5th Cir. 1963); Boston Ins. Co.204 F.2d at 443. In short, there must be some showing that the loss occurred by chance.
For boat insurance policies, policyholders should generally try to show that the boat was seaworthy and that something outside of normal circumstances caused the boat to sink. They failed to do this:
[T]hey tried to show coincidence by claiming that the loss was due to heavy rain. But Charti’s statement of undisputed facts notes that there is no data to support it [the] theory that [Three Times a Lady] was subject to “hard rains” regardless of the date.’ Although we were tempted to look beyond the statement of undisputed facts, the evidence elsewhere in the record does not support the proposition that the loss was due to heavy rains. Even Inganamort’s own expert could not say with certainty that there were heavy rains in the area at the time in question.8 Finally, while Inganamort had initially claimed that the vessel was seaworthy before 15 September, they made no attempt to present renewed evidence of seaworthiness after the loss was backdated to September 5 or 6; nor did they make this argument before the district court or on appeal. Because there is nothing in the record to support the argument that the loss was due to heavy rains and there is no other indication of chance, Inganamorts did not carry its burden of proving an accidental loss.
For the very geeky coverage geeks like me who are interested in this exciting insurance concept “fortuity”, you might want to read The Fortuity Doctrine: Deconstructing the All-risk Policyand The Fortuity Doctrine, Part 2: Deconstructing the All-Risk Policy.
If you are so afraid of failure, you will never succeed. You have to take chances.
– Mario Andretti
1 Chartis Property Cas. Co v Inganamort953 F.3d 231 (3rd Cirrd Cir. 2020).